Reverse Mortgage Glossary
The margin is added on top of an index to create the fully-indexed initial interest rate (IIR) charged for a variable-rate HECM reverse mortgage. For example, if the index is 0.50% and the margin is 2.50%, then the fully-indexed IIR is 3.0%. If the index increases, then the IIR will increase as well and interest will accrue faster on the loan balance.
The most commonly used indices for the variable-rate HECM are the 1-Month LIBOR and the 1-Year LIBOR.
Note that there is no index or margin for the fixed-rate HECM because the IIR is set for the life of the loan.
The lender doesn’t have control over the index, but it does have control over the margin. You may be able to negotiate for a lower margin, which lowers the IIR and reduces interest costs over the life of the loan. However, note that the growth rate on the line of credit is tied directly to the IIR. A lower IIR will also reduce the growth you accrue on your available line of credit.